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So much for globalism in Singapore

Monday, 02 August 2010

By Peter Maloney

Temasek Holdings, Singapore's sovereign wealth fund, is trying to buff up its image in a bid to be more of a player in the world of global investing, but it appears to be having second thoughts about how to go about that.

Recent successes aside - the $134 billion fund just concluded a $735 million offering of AAA-rated bonds in 90 minutes - some of Temasek's recent forays on to the global stage have been marked by missteps.

Historically the key to Temasek's success has been to invest close to home and, in particular, in up and coming industries and companies based in booming Singapore. Temasek recently touted its record high asset level and said that it would continue to overweight Asia. Singapore accounted for 32 percent of its portfolio as of March 31, with Asia accounting for 78 percent
of its overall portfolio.

A closer look at Temasek's recent results sheds some light on that decision. Behind the rise to record asset levels, Temasek's net profit fell 26 percent for the year ended March 31. That decline reflects the fact that while the share prices of companies in which Temasek invested rose, their profits were less robust. In short, Temasek's assets rose on the rising tide, even though it had
trouble navigating individual dangers stemming from the recession.

Looking back to Temasek's performance earlier in the recession reveals more questionable decisions. Temasek had stakes in both Bank of America Corp. and Barclays PLC that it sold in late 2008 and early 2009, resulting in a loss of over $5 billion according to media reports. (In its 2008-2009 fiscal year Temasek posted a 30 percent decline in total shareholder returns.)

So it was hardly surprising when, in September 2009, Temasek announced the appointment of Charles "Chip" Goodyear as CEO-designate to replace Ho Ching. Goodyear, formerly head of BHP Billiton, led the mining giant into successful investments in China and India, and his position as the head of Temasek signaled not only fresh blood but an effort to show that Temasek is a global company with global leadership.

A couple months later, in July, Goodyear and Temasek mutually agreed to part ways, citing irreconcilable strategic differences. The scant information from both parties prompted speculation on the underlying causes of the split. And, as one blogger noted, the official explanation that his proposed changes were too risky is hard to understand when framed within the context of the recent performance of the woman he was going to replace.

Ho's money-losing investments in BofA and Barclays are not the only issue, however, there is also the image problem, at least for a fund that is assuming a larger role on the global stage. Ho, an engineer by training, is the wife of Singapore's prime minister, Lee Hsien Loong, who in turn is the son of Singapore's first prime minister and founding father, Lee Kuan Yew.

But rather than increasing transparency, in the wake of the Goodyear fiasco, Temasek seems to be circling the wagons. In May, Temasek announced the appointment of Hsieh Fu Hua, former CEO of the Singapore Exchange, as executive director and president and said Hsieh would assist Ho in talent development and succession planning. But as recently as early July,
Temasek executive director Simon Israel said that Ho would not be stepping down any time soon and that there is no active search for a successor.

Tight control economically and socially has been the secret to Singapore's success. Temasek seems to be having trouble moving away from that model. Keeping its decisions close to its vest and close to home seems to be Temasek's comfort zone. We shall see if its comfort zone is also its sweet spot.